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Status: 02/01/2021 5:08 pm
The stock market battle over computer game retailer Gamestop has apparently hit some hedge funds massively. Is there a threat of a wildfire that will shake the entire stock market?
The storm of retail investors in the stock of video game seller Gamestop is causing a sensation. While newspapers soared by a staggering 1,700 percent in just a few weeks, institutional investors who had gambled on falling prices are running into billions in the bill.
Hedge fund Melvin Capital alone is said to have lost about half of its assets under management in January, the Wall Street Journal reports. Of the eight billion dollars, there was only 4.5 billion left at the end of the month. Melvin makes a living speculating on falling prices. The hedge fund is one of the biggest losers in the market turmoil of recent weeks.
Do hedge funds have to sell stocks?
Because other hedge funds are likely to be hit by the sharp rise in Gamestop’s share price, there is now a fear of a widespread decline in shares. According to insiders, hedge funds could lose $ 20 billion, according to the Wall Street Journal. If the funds could be forced to sell stocks and other long positions to cover their losses at Gamestop, the prices of uninvolved companies threatened to collapse, which could lead to a wildfire, according to warnings from experts.
“Since everything is closely intertwined in modern financial markets, too many jumping gears can cause the overall system to stop working properly,” fears Jochen Stanzl from trading company CMC Markets. As long as uncertainty persists, many investors will no longer dare to venture into the ground.
Reassure Barclays Professionals
British Barclays Bank experts, on the other hand, are optimistic that the turmoil around Gamestop will remain localized. Overall, the volume of short sellers or short sellers trading on Wall Street is around $ 800 billion. In the case of Gamestop and other stocks targeted by retail investors and hedge funds, the volume is just $ 40 billion. Therefore, a decline in global equities is unlikely, as some market players fear. From the point of view of charting technology, a form of financial analysis, there is currently no cause for dramatization.
“Re-occupy Wall Street” -Bewegung
But what exactly happened on Wall Street? How can the shares of a struggling video game company soar in a month from just under $ 20 to $ 325 (closing price on Friday)? It can’t be due to Gamestop’s attractive business model, as this chain’s sales development has only known one direction for years: down.
According to experts, this is a new kind of protest against the financial world, a “Re-Occupy Wall Street” movement that is now targeting the “big boys” of the stock market with the help of apps, social media and brokers. off. to show the street.
“Young merchants are not only interested in making money on the go, but also in ideology,” says Boris Strucken of banking service provider Fidelity Information Services (FIS), the “Frankfurter Allgemeine Sonntagszeitung”: “You want to show the establishment who has the power “.
Small investors versus short sellers
Small investors are up against short sellers like Citron Research and Melvin Capital, who had bet massively on the Gamestop price drop. The funds are not without controversy. They borrow shares for a fee and sell them in hopes of being able to buy them back at a cheaper payback date. The difference between the sale price and the purchase price is your profit.
Anger on Wall Street
Many private investors wanted to get rid of these hated investors. Numerous posts on the “WallStreetBets” forum, where small investors organize, bear witness to the widespread anger at banks, hedge funds and all of Wall Street. There it is about sucking people so that a few, the so-called “Big Boys”, can fill their pockets with money.
Small investors get the support of left-wing liberal senator Bernie Sanders. He accuses hedge funds of “scandalous behavior” and calls for the practices of these investors to be examined “very carefully”. Sanders told ABC broadcaster that he had long been convinced that Wall Street’s business model was “flawed.”
Sen. Elizabeth Warren sees the Securities and Exchange Commission on duty and requested an investigation into the CNN broadcaster. He criticized that the development around Gamestop only illustrates what has been going on on Wall Street for years. There is a “group of players” who manipulate the market. That is why there must be better regulation to protect against market manipulation. The SEC must now “get out of the quark” and “do its job.”
The US Securities and Exchange Commission said on Friday it was monitoring “extreme price volatility.” This could mean “rapid and severe losses” for investors and “undermine” confidence in the markets.
Robinhood restricts trade
Popular with small investors, online broker Robinhood has already pulled the tightrope and restricted some stocks from trading. Starting today, users can only purchase a certain number of stocks and options from companies such as Gamestop, Blackberry, AMC Entertainment or Nokia, Robinhood announced Sunday night. In some cases, only one share can be purchased. Robinhood justified his decision with “persistent market volatility” and reserved further changes.
Small investors suspect that trading platforms want to stay free for hedge funds. Robinhood & Co. denies this, but the reactions on Twitter are clear. There is talk of “censorship” under the hashtag “Eat the rich.” On Monday the situation seems to have calmed down for the moment. Gamestop shares began trading on Wall Street with slight losses.
